U-T editorial: Lockyer's straight talk

Treasurer: Investors doubt rail project's viability; bonds tough sell

When it comes to the debate over the state’s $43 billion high-speed rail project, there are two camps. One features California High-Speed Rail Authority officials, their paid consultants and Gov. Arnold Schwarzenegger, who are enthusiastic advocates for the public-private partnership to build a network of speedy trains linking Northern and Southern California. Then there are those who look at the project’s business plan and ridership projections without rose-colored glasses – the Legislative Analyst’s Office; the University of California’s Institute of Transportation; state lawmakers of both parties; etc. – and question its viability.

On Tuesday, a powerful official added his name to the list of skeptics: state Treasurer Bill Lockyer. In an interview with Union-Tribune editorial writers, Lockyer raised two profound questions about the project.

The first question has to do with the rail authority’s ability to attract the $10 billion to $12 billion in private investment it says it needs. (Outside analysts think that much more private funding will be necessary.)

“There are segments of the line that you could run sensibly, principally L.A. to San Diego,” the treasurer said. “I hear from the world of Wall Street investment bankers about what they think makes sense. And almost universally, they’re convinced that no one can finance the routes from L.A. to the Bay Area, that it just will never work economically, certainly in the foreseeable future.”

Rail authority officials “need to do a lot more work to make sure investors can be reassured of the financial viability of the project,” Lockyer said. “There are dozens if not hundreds of infrastructure investment funds on the planet. [The California Public Employees’ Retirement System], as an example, recently bought a significant piece of a London airport. There are a lot of infrastructure funds like that that are public and private, probably trillions of dollars looking for good deals. So there’s financing potentially available if it’s a good deal. I’m just not yet convinced the investors are going to think that’s a smart investment to make.”

The second question has to do with the $9.95 billion in state bonds that voters authorized as seed money for the high-speed rail project in November 2008.

Given the many outstanding questions about the project, “I would be reticent to try to go to market to issue bonds to finance the state’s share,” the treasurer said.

This doesn’t mean Lockyer would or could block their issuance. “The only discretion I have is to say, ‘You can’t sell this. No one will buy this bond, certainly not at any reasonable price.’ ”

Lockyer’s straight talk on this issue is badly needed. Rail authority officials appear to be trying to start construction of the initial Bay Area phase of the project as soon as possible to meet deadlines for federal funding. What they should do instead is try to fashion a business plan that makes sense and adds up. Their present practice of dismissing outside criticism isn’t remotely constructive – especially criticism as reasonable and evidence-based as Lockyer’s.

Which brings us to Schwarzenegger. We forwarded Lockyer’s comments to his staff for a response and got a paragraph of talking points about the protections contained in the ballot measure funding the rail project.

What about the treasurer’s warning that Wall Street “almost universally” thinks the project’s key route “will never work economically”? What about his concerns about difficulty selling bonds for the project?

The governor’s office had nothing to say. In some contexts, we see the wisdom of the saying, “If you can’t say something nice, don’t say anything at all.” This is not one of those contexts.

The irony here, of course, is that on budget issues, Arnold Schwarzenegger likes to pat himself on the back for being willing to face the hard facts. When it comes to high-speed rail, he flees the hard facts.